On 20 September 2011, the Wall Street Journal reported that Ning, the social networking platform founded by Marc Andreessen was to be sold to Glam Media for a reported $150m – compared to a VC valuation of $750m two years ago.
So what changed?
When the VCs were piling in Ning was able to report that it had 30 million users.
It raised raised $119m in five rounds of investing. The early investors were led by Andreessen and Reid Hoffman (founder of Linkedin), Allen & Company $60m in the D Round and $15m in the E round.
Then they changed the business model from a free platform to a subscription based platform. The New CEO Jason Rosenthal was reported at the time to be delighted that they kept 50,000 of their 285,000 account holders. Today they say they have approximately 100,000 paying account holders and 60 million monthly unique visitors.
The Glam Media acquisition is largely in (pre-IPO) Glam stock. TechCrunch estimates that the subscription revenues are between $10m and $20m.
So here are the questions? Are the VC valuations too high and is Glam Media getting a deal? and which is the better model – Free with a very large account user base or Paid with a smaller but directly monetised customers?
This suggests to me that indirect magnetisation models (free-mium or an advertising supported free model) appears to be more valuable than the paid model. The scaling back of the account base at NING is clearly telling us that users are still expecting much of the web to be free.
On the other hand, if an IPO was not on the cards then a business is only worth what someone is prepared to pay for it and it seems that, in this case for the VCs, the gamble did not pay off.
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